Buy Low, Sell High - Why You Can't Make Money Investing In The Stock Market Or Can You - The Biggest Un-Truth

Is This A Good Time To Increase My Investments?

I was watching HLN’s Clark Howard the other day and he brought out an important topic on investing. He had received a letter from a watcher that asked if with the market doing so well, is this a good time to increase your market activity and investments. Not surprising to me, he said it was not. Why is this? Why would an expert in finances say not to increase the amount of money you are investing in the market?

The answer is simple, you want to buy low and sell high. I would bet that everyone understands what that means, but unfortunately most people do not live by this simple little rule. How come? Let’s put it bluntly, we are followers by nature. We tend to follow what other people are doing, rather than listening to common sense. Let me explain my comment.

Check these out from Amazon

Human Nature Is Against Us

By nature, people want to protect what they have. You work hard for things you have, whether
it’s money, your house, car or the Playstation you have. Of course you want to
protect it, keep it safe, and not lose it or break it. After all, what is the purpose of getting
those things and not being able to enjoy it?
This mindset is what causes most people to lose money in the stock
market.

“You can’t make money in the market” or “the market never makes money”. How many of you have heard those words before? I know I have, especially in my own family, and guess what; my family is NOT full of millionaires. Imagine that no millionaires in my family, although they all know how to make money, “put it in the savings account and gain interest.” My father, late in life, saw the error in that statement and began investing. I am convinced if he had not passed away at an early age, he would have been a millionaire. In only 10 years he amassed nearly half a million dollars and in another 10 he would have made $1 million (which is a whole other story).

Source

Source

The Normal Investment Cycle

Here is the normal persons investing strategy, (it’s also
depicted on the graph to the right.)
First sitting down with co-workers and/or friends, we begin to complain
about how bad the market has been and how your 401k has dropped. “The market is so low, I am not getting in
the market?” (Wink, wink). As time goes on the conversation changes to,
“the market is improving, if it continues to get better, I might invest.” And then too “Wow, the market is going
great, I am going to invest now.” At
this point you are very happy with your self.

Then there is a drop in the market, but that’s ok, it was
not much, it will come back, you think to yourself. So you keep an eye on the market and it
continues to drop, but it is still higher than what you bought it for, and you
know it will come back. It finally drops
lower than what you bought it for, but you can’t sell know, it would be a loss. Finally you have had enough, you lost 50% and
it is time to get out, so you sell.
Wait, it’s now lower than what you bought it for. Now you sitting down with your co-workers
and/or friends, you complain how your 401k dropped and how the market is so low
and you are not getting in now, because you always lose in the market.

This scenario plays out at every watercooler, kitchen table, cafeteria or bar stool around the country, I have even had it myself once. One question I do have is your car breaks down, and you are not a mechanic, why do you bring it to a mechanic and not a banker to fix. Because the mechanic is the expert, the mechanic knows how to fix it not the banker. So why would you take investment advice from someone who loses money in the market and not from people who make money in the market? For example, there is this guy that has made millions in the market, his name is Warren Buffet. Mr. Buffet has a simple strategy, “buy when people are scared and sell when people are happy.” In other words when people are scared the market is down, it is time to buy. When people are happy and comfortable, the market is high, so sell.

Examples Of What I Mean

Let’s take a look at the last market crash and fall. On March 6, 2009, the market hit 6443, by
mid may it was up 30% and by the end of the year it was up 60%. Although the market lost 54% prior to March
6, 2009 what would have happened if people increased their investments or at
the very least kept it the same. Many
people moved their money to “safe investments” like savings accounts and CD’s
which now pay less than 1%. With
inflation at 4% they just LOST 3%. If
they kept the money in the market they would have made their money back. The money they could have added would be up
60%. As of today 12/31/2010, the market
is at 11600 which is 80% increase since March 2009. If you would have invested $1000 in March
2009, that $1000 would now be $1800. A
5.5% CD, (I can’t remember when they were that high), the same $1000 would be
worth $1087, so who was better off?

Yes we did lose 54% prior to that. Let’s look at this too. In March 2009
starting with $1000 and losing 54% leaves you $460.00. Moving this to a CD you would at 5.5% you
would have $504.27 by 12/31/2010. Me,
starting with the same $460.00 keeping it invested I end up with $828.00. It’s still lower than what you started with,
yes it is, but it’s also $324 higher than putting it into a CD, and which one
would you like to have?

What if we both add $1000 to what was left of our first $1000? You know have a $1460 CD at 5.5% which grows
to $1600. I on the other hand have
$2628. “But the market will go down
again and you will lose all that” you say.
True the market goes up an down, that is how it was designed. The difference though, I don’t get
greedy. I set up a order to sell my
investment when it gets to $2500. In
fact every time value reaches a milestone I set a sell price. For example my account grows to $3000 and if
it drops to $2750 I sell my investment, if it goes to $3250 my new sell limit
is $3000. In other words you take your
profits when you can.

My Advice - Take It Or Leave It

What is my advice on investing? Buy low, sell high and don’t get greedy. The market goes down, but it also goes
up. When it’s down buy more, when it
starts going back up, take profits when you can and set limits. Above all, don’t panic. Doing this, I can guarantee you will do
better than fixed interest accounts. Good luck.

Comments

No HTML is allowed in comments, but URLs will be hyperlinked. Comments are not for promoting your articles or other sites.

sending

sonykuddi

6 years agofrom Bhubaneswar

I agree that buying low and selling high can help to make profit for an investor but where should we decide that this is the lowest price of that stock?

Brupie

7 years ago

I agree, when the market is high I like to sell off a little to create a cash reserve for buying when there is a sell-off. Another strategy to to not think in terms of the market as a whole, but to think of sectors. For example, when energy prices (like gas) are low, big oil companies' stock drops a bit - an investment opportunity.

AUTHOR

bgigstead

8 years ago

Thanks Nell,

Investing in the market is not easy and timing the market never works. I still believe investing to be good right now using Dollar Cost Averaging. This is where you invest the same amount every week, month,or whatever time frame you have, regardless of stock price. This averages to the best possible price in the long run. I would also invest in Mutual Funds rather than stocks, they are less risky.

Nell Rose

8 years agofrom England

Hi, I read this hub because even though I don't have much idea how it works, it has always fascinated me, so I try and learn a little bit as I go along! interesting stuff, thanks nell

This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

This is used to display charts and graphs on articles and the author center. (Privacy Policy)

Google AdSense Host API

This service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)

This is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)

Facebook Login

You can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)

Maven

This supports the Maven widget and search functionality. (Privacy Policy)

We may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.

Conversion Tracking Pixels

We may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.

Statistics

Author Google Analytics

This is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)

Comscore

ComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)

Amazon Tracking Pixel

Some articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)